On Thursday (April 15), the U.S. Treasury Department released its report on international capital flows (TIC), showing that the Chinese Communist Party increased its holdings of U.S. debt for the fourth consecutive month, adding $9 billion in February to bring its total holdings to $1.1 trillion, the highest in July 2019.
In January, the Chinese Communist Party’s holdings of U.S. debt rose by $22.9 billion from a year earlier, the largest increase since August 2017, to $1.095 trillion, according to financial blog Zerohedge.
The CPC is now the second-largest foreign holder of U.S. debt after Japan, whose holdings fell by $18.5 billion to $1.26 trillion in February, the sixth decrease in seven months.
As of October last year, the Chinese Communist Party had reduced its holdings of U.S. debt for five consecutive months to $1.05 trillion, a nearly four-year low since January 2017.
Due to tensions between the U.S. and China, some investors are concerned that the Chinese Communist Party may retaliate against the U.S. by selling U.S. debt.
Reuters reported on April 1 that BCA Research geopolitical analyst Matt Gertken said that despite rising tensions between the U.S. and China, the Chinese Communist Party has not seen a rapid reduction in its U.S. debt holdings because selling U.S. debt “is not a weapon they can use without hurting themselves. “.
Brian Klos, a fixed-income manager at Brandywin Global, also said that as yields rise, U.S. debt is becoming attractive to other foreign investors, especially for hedging purposes. So if the Chinese Communist Party does reduce its holdings, they may step in to fill some of the gaps left behind.
In addition, an important reason why it would be difficult for the CCP to reduce its purchases of U.S. debt is that there are few other markets with assets as liquid and low-risk as U.S. debt.
The Fed is also expected to make acquisitions if yields on U.S. debt rise to levels that could affect the U.S. economy.
Gatken stressed that in either case, selling U.S. debt “is not a weapon that China (the Chinese Communist Party) can easily use,” and that “China (the Communist Party) only holds about 5 percent of U.S. Treasuries, so they can make some difference, but that’s basically it. “.
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